NOTE 10—INCOME TAXES
The Company is subject to US federal income tax as well as income tax in multiple states and foreign jurisdictions. For all major taxing jurisdictions, the tax years 2004 through 2017 remain open to examination by the taxing authorities due to the carryforward of unutilized net operating losses. As of December 31, 2017, the Company does not expect any material changes to unrecognized tax positions within the next twelve months.
Components of the income tax provision are as follows for the years ended December 31 (in thousands):
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current tax benefit (provision): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(3 |
) |
|
Foreign |
|
|
— |
|
|
|
95 |
|
|
|
— |
|
|
Total |
|
|
(3 |
) |
|
|
93 |
|
|
|
(3 |
) |
|
Deferred tax benefit (provision): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(1,090 |
) |
|
|
838 |
|
|
|
(31 |
) |
|
State |
|
|
72 |
|
|
|
52 |
|
|
|
12 |
|
|
Total |
|
|
(1,018 |
) |
|
|
890 |
|
|
|
(19 |
) |
|
Change in valuation allowance |
|
|
1,018 |
|
|
|
(890 |
) |
|
|
19 |
|
|
Total benefit (provision) for income taxes |
|
$ |
(3 |
) |
|
$ |
93 |
|
|
$ |
(3 |
) |
A reconciliation of income taxes computed by applying the federal statutory income tax rate of 34.0% to income (loss) before income taxes to the recognized income tax provision reported in the accompanying consolidated statements of operations is as follows for the years ended December 31 (in thousands):
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
U.S. federal income tax at statutory rate |
|
$ |
1,587 |
|
|
$ |
996 |
|
|
$ |
422 |
|
|
State taxes, net of federal benefit |
|
|
46 |
|
|
|
32 |
|
|
|
6 |
|
|
Non-deductible expenses |
|
|
(441 |
) |
|
|
(8 |
) |
|
|
(10 |
) |
|
Foreign income tax rate differential |
|
|
(103 |
) |
|
|
(9 |
) |
|
|
(443 |
) |
|
Valuation allowance |
|
|
1,018 |
|
|
|
(890 |
) |
|
|
19 |
|
|
Tax Reform |
|
|
(2,067 |
) |
|
|
— |
|
|
|
— |
|
|
Other |
|
|
(43 |
) |
|
|
(28 |
) |
|
|
3 |
|
|
Total benefit (provision) for income taxes |
|
$ |
(3 |
) |
|
$ |
93 |
|
|
$ |
(3 |
) |
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has recorded a full valuation allowance against its deferred tax assets, as realization of such assets is uncertain based on the Company’s history of operating losses. Significant components of deferred tax assets and liabilities are shown below (in thousands):
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Current deferred tax assets: |
|
|
|
|
|
|
|
|
|
Allowance for bad debts |
|
$ |
22 |
|
|
$ |
34 |
|
|
Share-based payment expense |
|
|
162 |
|
|
|
321 |
|
|
Allowance for obsolete inventory |
|
|
75 |
|
|
|
30 |
|
|
Accrued compensation |
|
|
41 |
|
|
|
63 |
|
|
Other accruals |
|
|
22 |
|
|
|
66 |
|
|
Total |
|
|
322 |
|
|
|
514 |
|
|
Non-current deferred tax assets: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
— |
|
|
|
16 |
|
|
Capital loss |
|
|
— |
|
|
|
179 |
|
|
Net operating loss |
|
|
4,116 |
|
|
|
3,991 |
|
|
Credit carryover |
|
|
51 |
|
|
|
51 |
|
|
Total |
|
|
4,167 |
|
|
|
4,237 |
|
|
Valuation allowance |
|
|
(4,489 |
) |
|
|
(4,751 |
) |
|
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
At December 31, 2017, the Company had federal and state net operating loss carryforwards of approximately $15,590,000 and $15,822,000, respectively. The federal loss carryforwards do not expire. The state loss carryforwards expire in 2037.
Pursuant to Internal Revenue Code Section 382, use of the Company’s net operating loss carryforwards will be limited if a cumulative change in ownership of more than 50% occurs within a three-year period.
Following the Company’s adoption on January 1, 2007 of ASC 740-10 regarding accounting for uncertainty in income taxes, the Company made a comprehensive review of its portfolio of uncertain tax positions in accordance with the guidance. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. As a result of that review, the Company concluded there were no uncertain tax positions and no cumulative effect on retained earnings at the time of adoption. Subsequent to that date of adoption through December 31, 2016, the Company has continued to evaluate its tax positions and concluded that it has not had any material uncertain tax positions.